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Gary & Co Ratio Analysis & Cost of Trade Credit

1. Given the following data for Gary and Co (Millions of Dollars)

Balance Sheet Dec 31 200X

Cash $ 45
Accounts Payables $ 45
Marketable Securities 33
Notes Payables 45
Receivables 66
Other Current liabilities 21
Inventory 159
Total Current liabilities $111
Total Current Assets 303
Long term debt 24
Total liabilities $135
Net Fixed Assets 147
Common Stock 114
Total Assets $450
Retained Earnings 201
Total stockholders' equity 315
Total liabilities and equity 450

Income Statement Year 200X

Net sales $795
Cost of goods sold 660
Gross profit 135
Selling expenses 73.5
Depreciation 12
EBIT 49.5
Interest expense 4.5
EBT 45
Taxes (40% 18
Net Income 27

Calculate the following ratios:

Current ratio
Times interest earned
Inventory Turnover
Sales/Total Assets
Profit margin on sales
Return on Total Assets
Return on Common Equity

Hint: Use Net Sales of $795.
Days sales out is also called Days Sales Uncollected.

Show the formulas and numbers used in the calculations. Show calculations/formulas

2. Calculate the cost of trade credit given terms of 3/20 net 60
When performing this calculation why not use the number 100. Make sure to show the formula. Show calculations by hand as well.

Solution Preview

See the attached sheet for calculations.

Current Ratio = Total Current Assets/Total Currrent ...

Solution Summary

The solution computes various accounting ratio's for Gary & Co and also find out cost of trade credit in another example.